Union Budget 2021: Seven ideas to transform Indian agriculture

Budget 2021 agriculture
The way forward could be to maintain a credible database of tenant farmers to enable them avail the benefits of various schemes including the minimum support price.

By Ashok Vishandass and Nitisha Thakwani

India’s agriculture policy has been successful in turning the import-dependent country into a self-sufficient one and then to a food exporting one. No mean achievement considering food items are exported after feeding 1.35 billion citizens. But there is a growing concern that farmers’ income is not keeping pace with economic growth in Asia’s third largest economy. Here are seven ideas for Budget 2021 that can transform the country’s agriculture sector.

The agricultural sector that contributes 14.6% to the economy has immense potential to support the $5 trillion economy goal set by the National Democratic Alliance government led by Prime Minister Narendra Modi. A slew of reforms in agri-marketing, agri-exports and private investment were initiated by the government to transform the country’s agriculture. India’s agriculture sector and farmers’ welfare could get a booster shot if finance minister Nirmala Sitharaman incorporates the following seven broad measures in Union Budget 2021.

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Stable trade policy

India is among the top 10 exporters of agricultural products in the world. The Budget 2021 needs to target a stable agriculture trade policy regime. In response to short-term supply bottlenecks, the government resorts to export curbs such as imposition of a minimum export price, quantitative limit on shipments, export duty and an outright ban to control domestic prices. Onion export ban that is employed from time to time is a case in point.

Unstable agri-trade policy dents India’s credibility as a reliable supplier. This drives international buyers to competitors and the country loses her market share. If the country strategically reorients the agriculture export policy in a calibrated manner, it can achieve an agri-export target of $60 billion by 2022 and $100 billion within a few years, compared with the current level at $37 billion.

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Set up organic product export zones

With the global trade in organic products estimated at around $90 billion, there is a huge opportunity for exports of value-added organic products from India. The country’s exports of organic food products stood at $689 million in 2019-20. Goa, Madhya Pradesh, Maharashtra, Northeastern Region, Rajasthan, and Uttarakhand are major producers of organic products.

The Budget 2021 should aim to create organic product export zones (OPEZs) with common infrastructure for processing, and connectivity to ports and airports. Besides, trade representatives be appointed in India’s embassies and consulates in various countries for export promotion and market intelligence.

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An enabling policy framework

While land is inelastic, activities can add income elasticity. For example, enabling farmers to produce solar energy can make India a frontrunner in International Solar Alliance. About 500 trees per acre at a height of 10’-12’ can be planted in such a manner that even tractors can move through, while farmers can keep growing their normal two crops. At the same time, ample sunlight can penetrate for photosynthesis and it would not impact the productivity.

For financial viability, the states should be nudged to do power purchase agreements (PPA) to channelise excess power generated. This is being done in Gujarat and needs to be scaled up and replicated in other states.

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Intensify diversification

Land is a precious natural resource and it is imperative to utilise it judiciously. For instance, 12% of cropped area under fruits and vegetables give rise to 24% in value terms compared with 13% area under oilseeds that will give only 6% in value terms. This is so because high productivity palm oil cultivation is not scaled up.

A detailed feasibility report (Oil Palm: Pricing for Growth, Efficiency & Equity) on cultivation of this oilseed in coastal areas has been undertaken. Given India’s substantial deficiency in domestic production of edible oils, this low-cost oilseed with high productivity should be promoted in mission mode. At the same time, one village one competitive product (OVOP) be designed and promoted.

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Get markets and prices right

Getting the prices right may be a necessary condition, but not a sufficient one. Consider farmers are getting lucrative prices for their produce. But if just 55% of their produce get integrated with the market, they would still be operating at a sub-optimal level.

The entire production of all commodities from all corners of the country ought to be evacuated and monetised to ensure the welfare of farmers. Therefore, it is essential to get both prices and markets right. This also requires the setting up of rail cargo centres in mission mode. Kisan Rail Service and Krishi Udaan (agriculture flights) will enable farmers to sell their crops in other states.

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Digitisation of land records

Digitisation of land records and registration of landless cultivators or tenant farmers is a pre-requisite for a successful direct benefit transfer system, A sizeable proportion of farmers are landless cultivators who face a variety of problems ranging from non-acceptance of their produce by public procurement agencies (FCI, NAFED) at MSP to getting crop loans. Since such farmers are not de jure cultivators (though they are de facto farmers as they cultivate land as tenants), FCI/NAFED turn them away.

A way forward could be to maintain a credible database of such cultivators that will enable them to avail the benefits of various schemes including the minimum support price. The government of Andhra Pradesh, for instance, had enacted the Land Licensed Cultivators Act, 2011 under which loan eligibility cards are issued to tenant cultivators. This scheme needs to be replicated in other states on an urgent basis to enable tenant farmers to sell their produce at MSP.

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What Budget 2021 ought not do

Of late, a vociferous demand for fixing MSP at 50% above the C2 cost as against the existing 50% above cost A2+FL is being raised. The former cost (C2) is higher than the latter because former includes imputed interest on farmers’ own capital and also imputed rental value of farmers’ own land. These two components do not constitute cost in any business enterprise, and get rewarded in their profits.

In any case, MSP is a price instrument, not an income instrument and therefore any attempt to achieve objective of augmenting income through price instrument (MSP) will distort markets. Fixing MSP at 50% above the C2 will make agri commodities uncompetitive in international markets. Not only this, India’s domestic markets would be flooded with cheaper agri-imports, and is likely to inflict avoidable injury to our agriculture sector.

When agriculture policy framework is reoriented as suggested in this article, it will lead to higher income to farmers through monetisation of their high value produce, better price realisation, and congenial trade policy environment. India’s farm sector can surely move to a higher trajectory of growth. If these measures are implemented as a package, it will lead to a V shaped recovery in the 2021-22 financial year. A sustainable farm sector growth in excess of 6% can be achieved which can turbocharge the economy.

(Dr Ashok Vishandass is Professor (Applied Economics) at Indian Institute of Public Administration and former Chairman, CACP, ministry of agriculture. Nitisha Thakwani is a management professional. The views expressed in this article are personal.)